Natural gas prices poised to hammer consumers and industries in months ahead

Frank Reeves
Pittsburgh Post Gazette
July 13, 2003

It's not too early to start planning for next winter's heating bills, especially if you are like most Pittsburgh-area residents and heat your home with natural gas.

Residential heating bills are likely to be higher next winter, buoyed by rising natural gas prices. But just how great a bite they will take out of family budgets will depend a lot on the weather. Given that gas supplies are tight, a hot, humid summer, followed by an early cold snap and a severe winter, could push natural gas prices to record levels.

Last week, Federal Reserve Chairman Alan Greenspan predicted that tight natural gas supplies and high prices would be evident for some time.

"Today's tight natural gas markets have been a long time coming, and distant futures prices suggest that we are not apt to return to earlier periods of relative abundance and low prices anytime soon," he told a Senate panel Thursday.

So far, Greenspan said, the impact of the high natural gas prices has mainly been on the industries, such as chemicals and fertilizer production, in which natural gas is an important input. But "you are going to clearly see significantly higher [heating] bills as we go into the winter" if, as expected, tight supplies and high prices persist, he added.

The prospect of sky-high natural prices and their impact on heating bills already has Pennsylvania Consumer Advocate Sonny Popowsky worried.

"This is the most significant consumer issue [now facing my office]. Natural gas prices are disturbingly high. What's particularly disturbing is that they've stayed high so long and didn't go down much in the spring," he said.

"We can hope for a mild winter. But people should begin taking steps to deal with high heating bills, since we are likely to go into the heating season with prices higher than last year at the same time," he added.

In April, the region's dominant gas utilities -- Equitable Gas, Dominion Peoples and Columbia Gas of Pennsylvania --asked state regulators to approve significant increases in what they can charge residential customers. The new rates, which would take effect Oct. 1, reflect what the utilities believe will be the price of natural gas at the start of the heating season. The rates would have to be approved by the Pennsylvania Public Utility Commission.

The PUC permits utilities to pass to their customers the cost of purchasing natural gas. And it was these charges, coupled with the need to crank up the thermostat on so many colder-than-normal days, that were mainly responsible for last winter's soaring heating bills.

For example, from October through December 2002, Columbia Gas charged its customers $6.82 per thousand cubic feet (mcf) to cover the cost of natural gas. However, Columbia has asked the PUC to approve a 19 percent rate increase, which would boost the rate to $8.12 per mcf for the same period this year.

Equitable Gas and Dominion Peoples have proposed even higher increases.

Dominion charged its customers $5.17 per mcf during the period October through December 2002. This year it has asked for permission to charge customers $8.23 per mcf during the same period -- a 40 percent increase.

Similarly, Equitable would boost rates for the October-December period by about 35 percent, from $6.04 per mcf in 2002 to $8.14 per mcf in 2003.

The five-member PUC isn't expected to act on the utilities' rate increase requests until sometime late next month or in September.

Rob Boulware, spokesman for Columbia Gas, said it's possible that, as the PUC gets closer to a decision, the company might request a smaller rate increase if it appears that natural gas prices aren't likely to be as high as some analysts have predicted.

Indeed, some took comfort last week when the Energy Information Administration, the statistical and research arm of the U.S. Department of Energy, revised downward its estimates of future natural gas prices.

The agency noted that demand for natural gas wasn't as great in the late spring as had been expected--in part due to the cool, wet weather in the eastern United States. An early onset of hot weather would have boosted demand for electricity to run air conditioners, forcing many electric utilities to bring on line gas-fired power plants to meet the increased demand. This would have further tightened already tight natural gas supplies.

Because demand was less than expected in the spring, more natural gas was able to be injected into underground storage facilities in anticipation of the heavy demand expected during the 2003-04 heating season.

But the Energy Information Administration cautioned that it may have to revise its estimates again if the nation has a spate of unusually hot days this summer.

Although the agency doesn't think that natural gas prices will be as high as it once predicted, this doesn't mean prices will drop to around $3 per mcf, which was what Columbia Gas, for example, charged customers during the fall of 2001.

Indeed, the agency said that wholesale natural gas prices are likely to remain closer to $5 per mcf for the remainder of this year and into 2004. This would be first time, when adjusted for inflation, that natural gas prices have remained above $4 per mcf for two consecutive years, the Energy Information Administration said.

With little prospect that natural gas prices will drop significantly anytime soon, Popowsky said consumers should begin taking steps to avoid a spike in their heating bills this winter.

*They should work out budget billing with their local gas utility, so that they pay a flat rate every month. This will prevent their being hit with huge bills in the coldest months.

*People who think they qualify should check out programs that are designed to help low-income families pay their heating bills. Some of these, such as the Low Income Assistance Program (LIHEAP) and the Dollar Energy Fund Inc. won't be under way until the fall.

LIHEAP, although paid for with federal funds, is administered by the state Department of Pubic Welfare. It provides crisis assistance for people whose heat, electricity or water has been cut off. It also helps people who have a hard time paying their bills and face the prospect of having their utilities cut off.

The Dollar Energy Fund helps low-income people whose gas, light or water have already been turned off. It is the last resort for people who have already tried to get assistance from government programs such as LIHEAP or tried to work out payment arrangements with their utility company.